Minnesota health insurance exchange expected to cost $54 million

By 2015, Minnesota's proposed health insurance exchange is expected to cost $54 million to operate -- a tab that the state might cover through user fees, a "sin tax" or maybe even the sale of naming rights for the new marketplace.

Those details came from a state submission Friday, Nov. 16, to the federal government that spells out how Minnesota plans to operate the health exchange, which will change the way many individuals and small groups buy coverage beginning in October 2013.

The so-called "blueprint" for Minnesota's health exchange helps set the terms of debate over how the new marketplace might be funded and governed. But Jim Schowalter, commissioner of Minnesota Management and Budget, cautioned that the cost projections are not set in stone.

"I would take those figures with a grain of salt," Schowalter said. "Depending on the implementation choices, and as we know more about the cost, I think we will create new estimates and try to drive that cost down."

Republicans, who will be in the minority when the Legislature returns in January, said the state's exchange plans are too expensive.

"This is going to cost a lot of money," said Rep. Steve Gottwalt of St. Cloud. "Now that the DFL is in charge of both houses of the Legislature and the governor's office, and now that President Obama has won ... can't we slow down a little bit and be thoughtful?"

Democrats, however, argued that the state is in a good position to move forward.

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The health exchanges are meant to make it easier for consumers to comparison shop for health plans -- a structure that proponents say could drive down the cost of coverage. The exchanges will be launched with a series of insurance market changes that will prevent insurance companies from denying policies to people with pre-existing health conditions; many shopping on the exchange will do so with subsidies from the federal government.

"We're going to be able to make significant strides on health care reform," said Sen. Tony Lourey, DFL-Kerrick. "Minnesota is ahead of the pack."

The federal Affordable Care Act of 2010 calls for the creation of state-level health insurance exchanges where individuals and small groups can start purchasing coverage in late 2013. The exchanges are supposed to include user-friendly websites that let consumers buy health insurance much as they purchase airline tickets through websites such as Travelocity and Orbitz.

Beyond a website, Minnesota's exchange will include a call center for consumers to get information over the phone. Insurance brokers and a new group of advisers known as "navigators" will help people, although questions remain about the roles played by both groups.

Friday was supposed to be the deadline for states to announce whether they planned to develop their own exchanges rather than adopt a model designed by the federal government. Federal officials opted to push back the deadline, but Minnesota officials went ahead with their submission.

"Our state-based exchange will give over 1.2 million Minnesotans -- both individuals and small businesses -- more affordable options for choosing high-quality health insurance," wrote Gov. Mark Dayton, a Democrat, in a letter to federal officials released Friday.

He said some elements of the exchange blueprint application will be finalized by the Legislature in early 2013.

In Wisconsin, Gov. Scott Walker sent a letter to federal officials Friday saying his state would not develop a health exchange. Instead, Wisconsin will use an exchange developed by the federal government.

"If the state option is chosen ... Wisconsinites face risk from a federal mandate lacking long-term guaranteed funding," wrote Walker, who is a Republican.

Minnesota is receiving about $71 million in federal grants to fund work on the exchange through 2014. After that, Minnesota's exchange must be self-sustaining.

"The governor has asked legislators to work with him to create a public/private partnership as a governance structure that would include a board comprised of members from the public and private sectors," the blueprint states.

Of the estimated $54 million in projected operating costs during 2015, about $13 million would come from the state-federal Medicaid program. Medicaid would provide a comparable sum in 2016, when projected costs grow to $64 million.

State officials expect that Medicaid beneficiaries will make up a big chunk of those who obtain health benefits through the exchange. The exchange is projected to employ 81 people.

The operating costs would work out to about 2 percent to 3 percent of annual premiums sold on the exchange, said John Pollard, a Minnesota Management and Budget spokesman.

Pollard said the figures are comparable to operating costs for the Massachusetts Connector, the health insurance exchange that was created in that state a few years ago that's served as the model for the federal health law.

"The exchange will be useful for people that are used to using the Internet to make decisions -- to order airplane tickets or whatever," said Rep. Tom Huntley, DFL-Duluth. "But for some people, it's going to be too complicated, so they'll have to do a personal contact with a broker or navigator.

"The overall attempt is to make this a much simpler process, so people can easily compare one health plan to another health plan."

The blueprint suggests that individuals and groups buying policies on the exchange might be required to pay a user fee. There might also be an assessment paid by insurance companies that sell policies on the exchange.

A so-called "sin tax" on risky health behaviors such as smoking might be in the revenue mix. The sale of naming rights and advertisement on the exchange website might raise money, too, although there could be questions about who could be a sponsor because of conflict-of-interest concerns.

Some of the funding scenarios have business groups worried.

"Imposing a premium tax on consumers to pay for that expense will likely increase the cost of health insurance for small businesses and their employees at a time when many are already struggling to maintain coverage," said Kate Johansen, manager of health policy for the Minnesota Chamber of Commerce.

Lourey, the DFL legislator from Kerrick, said Friday that it's too early to say which options might make the best sense for funding the exchange. Huntley, the Duluth DFLer, said revenue from a current tax on health care providers might be a funding source.

With DFL victories in the November elections, Lourey and Huntley are scheduled to chair key health committees next year in the state Senate and House. The current timeline would have the Legislature answer questions about the governance and funding of the marketplace by March.

Christopher Snowbeck can be reached at 651-228-5479. Follow him at twitter.com/ chrissnowbeck.